IRS Warns Against Home Storage for Precious Metals Owned by Self-Directed IRAs

Photo of gold bullion with the text "IRS Warns Against Home Storage for Precious Metals Owned by Self-Directed IRAs."The Wall Street Journal recently reported on the radio advertising that promotes an ability to store gold owned by a self-directed IRA at the IRA owner’s own home. Based on the Journal’s reporting and investigation, the IRS issued a statement warning against such storage. I’ve written about this topic on a number of occasions and our firm has always recommended against home storage for precious metals owned your IRA or your IRA/LLC.

The recent statement by the IRS against home storage is an important development and one that all self-directed IRA investors who own precious metals should be aware of. Keep in mind, there are two rules that apply to precious metals owned by an IRA.

Qualifying Metals

First, the precious metals owned by an IRA must qualify under IRC § 408(m)(3). In short, these rules approve certain specifically approved coins (e.g. American Eagles) and gold, silver, platinum, or palladium that meet certain fineness requirements. Check my prior article for more detail as not all precious metals qualify to be owned by an IRA. In addition, Chapter 12 of my book, The Self Directed IRA Handbook covers the subject in detail.

Storage Requirement

And second, qualifying metals must be stored in accordance with IRA rules. Precious metals must be stored with a “bank” (e.g. bank, credit union, or trust company). Personal storage of precious metals owned by an IRA is not allowed. A broker-dealer, third-party administrator, or any company not licensed as a bank, credit union, or trust company may not store precious metals owned by an IRA. Additionally, an IRA owned LLC (aka, IRA/LLC) is subject to the same storage rules and must store metals the LLC owns with a “bank”.

If an IRA purchases precious metals that do not meet the specific requirements of IRC § 408(m)(3), then the precious metals are deemed collectible items. As a result, they are considered distributed from the IRA at the time of purchase. IRC § 408(m)(1). Similarly, if the storage requirement is violated, then the precious metals are also deemed distributed as of the date of the storage violation. IRS Private Letter Ruling 20021705. The consequence of distribution is that the value of the amount involved is deemed distributed and is subject to the applicable taxes and penalty.

Given the warning against home storage from the IRS, self-directed IRA owners should think twice before storing precious metals owned by their IRA or their IRA/LLC in their home.

For a detailed legal analysis, please refer to our Whitepaper on the topic found at the link below.

white-paper_storage-requirements-of-precious-metals-in-ira-llc_070715.

RADIO AD WARNING: SELF-DIRECTED IRA INVESTORS SHOULD GO FOR THE GOLD WITH CAUTION

Gold-Bar-IRA 

I hear a radio ad every week that says, “there is a loophole that allows you to use your IRA to buy physical gold “tax-free” and that you can EVEN store this gold in your home.” If these radio ads were on T.V., there’d probably be an image of Scrooge McDuck swimming in gold at his McMansion. These ads cause much concern as they give some misleading information. The good news is that you really can use your IRA to invest in gold. In fact, I have many clients who like to buy actual physical gold with their IRAs. And we’re not talking about gold funds or gold ETFs, but actual solid gold. You can also own silver, platinum, and palladium with your IRA so long as those metals meet certain legal requirements. Here’s the catch though and what the radio ads are missing, you can only own precious metals that meet certain legal requirements and you cannot personally store the metals. Don’t count on someone who sells precious metals to be an expert on IRA rules. They make money when you buy precious metals and they have no training or license to properly advise you, so get your legal and tax advice from a competent lawyer or tax adviser.

LEGAL RULES FOR IRA OWNED PRECIOUS METALS

Precious metals have been a popular investment for retirement plans since the financial market collapse in 2008. Most standard IRAs with financial institution custodians will typically only offer precious metals through funds or other complex structures whereby the IRA does not directly own the precious metals. A self-directed IRA can hold actual precious metals as long as those metals are not considered collectibles under law and as long as they are properly stored.

Only precious metals which meet the requirements of IRC § 408(m)(3) may be owned by an IRA. All other metals or coins are considered collectible items and cannot be held by an IRA. IRC § 408(m)(2)(C), and (D).

There are two categories of approved precious metals. The first category are specifically approved coins, such as American Gold or Silver eagles. The second category is bullion (e.g bars, or coin form bullion) that is gold, silver, platinum, or palladium, AND that meets certain purity requirements. The purity requirements are outlined below.

  • Gold, meeting minimum fineness requirements of 99.5%.
  • Silver, meeting minimum fineness requirements of 99.9%.
  • Platinum, meeting minimum fineness requirements of 99.95%.
  • Palladium, meeting minimum fineness requirements of 99.95%

Precious metals must be stored with a “bank” (eg. bank, credit union, or trust company). Personal storage of precious metals owned by an IRA is not allowed. A broker-dealer, third-party administrator, or any company not licensed as a bank, credit union, or trust company may not store precious metals owned by an IRA. IRS Private Letter Ruling 200217059.

There has been much confusion about owning precious metals with an IRA and there is confusion over some “loophole” that allows you to store them in your home. Our advice is against home storage, for tax code reasons and for security reasons. We’ve outlined the tax reasons more fully in a prior blog article you can check out here. In general though, our advice is that if your self-directed account owns metals directly through your custodian account then those metals will be stored with the custodian or with a “bank” whom the custodian uses for customers. If the metals are bought with an IRA owned LLC, then the metals of the LLC are subject to the storage rules and this can be satisfied by the LLC opening up a safe deposit box with a bank and by physically storing the metals there.

If an IRA purchases precious metals that do not meet the specific requirements of IRC § 408(m)(3), then the precious metals are deemed collectible items. As a result, they are considered distributed from the IRA at the time of purchase. IRC § 408(m)(1). Similarly, if the storage requirement is violated, then the precious metals are also deemed distributed as of the date of the storage violation. IRS Private Letter Ruling 20021705. The consequence of distribution is that the value of the amount involved is deemed distributed and is subject to the applicable taxes and penalty.

Go for the gold, or silver, or the other approved metals with your IRA. But make sure the metals meet the code requirements and that they are properly stored.

This article is an excerpt from Chapter 12: Precious Metals of The Self Directed IRA Handbook by Mat Sorensen